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Title: The political economy of volatility dynamics in the Hong Kong Stock Market
Authors: Mun Fong, W.A.I.
Seng Koh, K.E.E. 
Keywords: Leverage effect and political risk
Regime switching
Issue Date: 2002
Citation: Mun Fong, W.A.I.,Seng Koh, K.E.E. (2002). The political economy of volatility dynamics in the Hong Kong Stock Market. Asia-Pacific Financial Markets 9 (3-4) : 259-282. ScholarBank@NUS Repository.
Abstract: Despite its obvious importance, little empirical research has examined the impact of political risk on stock market volatility. This paper uses data on the Hong Kong stock market over a long sample period to investigate whether political risk has induced regime shifts in stock market volatility. Regime shifts are modelled via a Markov switching EGARCH model that allows for regime-dependent volatility asymmetry. We find strong evidence of regime shifts in conditional volatility as well as significant volatility asymmetry in high volatility periods. Major political uncertainties were reflected in a switch to the high-volatility regime. However, contrary to popular perceptions, we find no evidence that the Hong Kong stock market has become persistently more volatile since the start of Sino-British political negotiations in 1982. © 2003 Kluwer Academic Publishers.
Source Title: Asia-Pacific Financial Markets
ISSN: 13872834
Appears in Collections:Staff Publications

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